Grenoble Enterprises had sales of $50,100 in March and $59,700 in April. Forecas
ID: 2809175 • Letter: G
Question
Grenoble Enterprises had sales of $50,100 in March and $59,700 in April. Forecast sales for May,June, and July are $70,500, $80,300, and $99,800, respectively. The firm has a cash balance of $4,700 on May 1 and wishes to maintain a minimum cash balance of
$4,700. Given the following data, prepare and interpret a cash budget for the months of May, June, and July.
(1) The firm makes 22% of sales for cash, 56% are collected in the next month, and the remaining
22% are collected in the second month following sale.
(2) The firm receives other income of $1,800 per month.
(3) The firm's actual or expected purchases, all made for cash, are $49,500, $69,600,
and 80,500 for the months of May through July, respectively.
(4) Rent is $3,000 per month.
(5) Wages and salaries are 10% of the previous month's sales.
(6) Cash dividends of $2,600 will be paid in June.
(7) Payment of principal and interest of
$3,500 is due in June.
(8) A cash purchase of equipment costing
$5,500 is scheduled in July.
(9) Taxes of $5,600 are due in June.
Grenoble Enterprises had sales ot S50 100 in March and 59.00 n Apri Forecast sales tor la June and Ju ara a cash budget for the months of May, June, and July. 70500 % of sales for cash, 56% are collected in the next month, and the remaining 22% are collected in the second month following sale ther income of $1,800 per month. expected purchases, all made for cash, are $49,500, $69,600, and $80,500 for the months of May through July, respectively month. s are 10% of the previous month's salesExplanation / Answer
Cash budget from May to July (Amount in $)
Particulars
May
June
July
Sales
70500
80300
99800
Cash balance (opening)
4700
7994
4700
Cash sales (22% of current months sales)
15510
17666
21956
56% of previous month’s sales collected (i.e. in May 56% of April’s sales is collected)
33432
39480
44968
22% of the two months previous sales collected (i.e. in May 22% of March’s sales is collected)
11022
13134
15510
Other income
1800
1800
1800
Total receipts
66464
80074
84234
Cash purchases
49500
69600
80500
Rent
3000
3000
3000
Wages & salaries (10% of previous month’s sales) (i.e. in May wages & salaries is 10% of April’s sales)
5970
7050
8030
Cash dividend
2600
Payment of principal & interest
3500
Cash purchase of equipment
5500
Taxes
5600
Total expenses
58470
91350
97030
Borrowings ( required only when receipt less expenses is below minimum cash balance i.e. $4700)
15976
12796
Cash balance (closing) (Receipt plus borrowings less expenses) (minimum is 4700, if falling short in any month, to be make up by borrowings)
7994
4700
4700
Note - closing cash balance of each month is the opening cash balance of next month.
As the firm wishes to maintain a minimum cash balance of $4,700, there is no problem in May, because Total receipt (including opening cash balance) is higher by $7,994 than it's total expenses, so borrowing is not required.
in June total income is $11,276 lower than it's total expenses, so to meet the requirement of minimum cash balance of $4700, a sum of $15,976 has to be borrowed.
in july also total income is $8,096 lower than it's total expenses, so $12,796 has to be borrowed to maintain a minimum cash balance of $4,700.
Particulars
May
June
July
Sales
70500
80300
99800
Cash balance (opening)
4700
7994
4700
Cash sales (22% of current months sales)
15510
17666
21956
56% of previous month’s sales collected (i.e. in May 56% of April’s sales is collected)
33432
39480
44968
22% of the two months previous sales collected (i.e. in May 22% of March’s sales is collected)
11022
13134
15510
Other income
1800
1800
1800
Total receipts
66464
80074
84234
Cash purchases
49500
69600
80500
Rent
3000
3000
3000
Wages & salaries (10% of previous month’s sales) (i.e. in May wages & salaries is 10% of April’s sales)
5970
7050
8030
Cash dividend
2600
Payment of principal & interest
3500
Cash purchase of equipment
5500
Taxes
5600
Total expenses
58470
91350
97030
Borrowings ( required only when receipt less expenses is below minimum cash balance i.e. $4700)
15976
12796
Cash balance (closing) (Receipt plus borrowings less expenses) (minimum is 4700, if falling short in any month, to be make up by borrowings)
7994
4700
4700